SoftBank seeks to build investment war chest on back of Arm IPO

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SoftBank’s listing of the chip designer Arm is set to to boost Masayoshi Son’s deal war chest to as much as $65bn after he vowed to go “on the counteroffensive” in pursuit of expansion.

Analysts, who based their projections on the Japanese group’s past dealings, said SoftBank could raise almost half that sum if it takes advantage of Arm’s upcoming IPO by using its own huge stash of shares as collateral for loans from banks.

As of the end of June, SoftBank had already accumulated cash of ¥5.1tn ($35bn) after the group offloaded a string of assets to bolster its balance sheet following record losses at the Vision Fund, an investment vehicle that the Japanese conglomerate manages.

The sale included most of its shares in the Chinese ecommerce giant Alibaba, Son’s most lucrative bet and an asset SoftBank had frequently used as collateral to raise cash.

“Arm will become the new Alibaba funding source,” said David Gibson, a SoftBank analyst at MST Financial.

“Masa is likely in the next six to 12 months to begin a spending spree over the next few years with over $50bn in capacity that we have not seen since the first Vision Fund,” he added.

Some investors believe Son has been preparing since last year to make a transformational, large-scale acquisition in a bid to regain his footing in the tech sector. The Arm listing comes at a critical juncture for SoftBank, as the value of its investment portfolio had been battered by the tech downturn.

Last year Son appeared at a press conference and declared that he was going into “defensive mode” — a phase that appeared to involve ceding day-to-day control of SoftBank to the more conservative chief financial officer Yoshimitsu Goto.

Yet when Son returned to the public eye in June, he declared that interlude over, saying the company was ready to go on a “counteroffensive”. SoftBank, the world’s largest technology investment conglomerate, would focus on artificial intelligence, he said.

Kirk Boodry, a SoftBank analyst at Astris Advisory in Tokyo, estimated that proceeds from the Arm listing would be about $6bn, if it achieved a valuation of $50bn to $60bn at the initial public offering and SoftBank sold a 10 per cent stake.

He projected that SoftBank would be able to borrow up to $25bn using its remaining stake in Arm as collateral. That would be about three times as much as the group currently borrows against its privately held shares in Arm, since banks would be more willing to lend once the UK group has a market valuation.

However, Boodry also cautioned that the amount of asset-backed financing and the actual proceeds of the IPO could be smaller, with many investors expecting Arm’s valuation to fall short of the $64bn that was recorded when the Vision Fund recently transferred its 25 per cent stake in the UK group to SoftBank.

Gibson said that it was possible that following the Arm IPO, Son’s company could hold about $65bn in cash and borrowings to finance an investment spree. That figure would include about $30bn in structured finance.

Son’s personal finances will also be closely tied with Arm’s valuation with the recent transfer of the first Vision Fund’s 25 per cent stake to SoftBank, which is owned one-third by its founder. He also stands to benefit from investments made by its second Vision Fund, in which he holds a 17.2 per cent stake.

SoftBank declined to comment.